Papua New Guinea: Drive to boost SMEs and create jobs

Authorities in Papua New Guinea (PNG) are hoping a new emphasis on developing small and medium-sized enterprises (SMEs) will generate up to 2m jobs in the next decade or so and boost the number of locally owned businesses. However, critics say that the government will first need to improve infrastructure and access to credit.

Speaking at a business and information expo in Port Moresby on June 4, the managing director of PNG’s state-owned National Development Bank (NDB), Moses Liu, said about 10% of SMEs in PNG are owned by locals, adding that the country faced a “huge challenge” in galvanising SME growth, but also highlighted the “...need to start now”.

Trade Commerce and Industry Minister Richard Maru told attendees that the government was consulting the private sector on a number of key issues, including reforms and new investment earmarked for SMEs.

“PNG’s SME sector is not only creating wealth for our citizens but also growing employment,” he commented. Maru said government plans to boost the number of SMEs from 49,000 to 500,000 by 2025 would create an additional 2m jobs in the formal economy.

The government has begun work on a range of incentives aimed at encouraging and supporting SME growth, including tax breaks, state buying commitments, the provision of subsidised finance and proposals to restrict foreign investment.

The state has lowered the cost of finance through the NDB, which in January reduced interest rates for SMEs to 6.5%, down from 20% in 2012. Three months on, the bank launched its micro-financing arm, the People’s Micro Bank, which offers loans from PGK5000 ($2238) up to PGK100,000 ($44,750) to family-owned companies with fewer than ten employees. Businesses can also apply directly to the NDB for larger loans.

Boosting the number of locally owned SMEs could spell significant challenges for the PNG government. The World Bank’s “Ease of Doing Business 2013” ranked PNG 104 out of 185 countries. The IMF, meanwhile, last year described PNG’s business environment for SMEs as “poor”.

In a 2013 economic briefing on PNG, the World Bank pointed to the infrastructure upgrades needed, particularly for roads and highways, adding that improvements would also have to be made to the telecommunications system. The organisation noted that the electric power grid, too, required significant investment.

The briefing also highlighted the importance of improving access to credit programmes for smaller businesses, such as the SME Risk-Share Facility and the BSP Rural Banking Programme. The former is a guarantee scheme that aggregates the loans obtained through the programme into one portfolio, reducing the risk to banks and financial institutions that lend to SMEs.

“Obtaining credit is an issue for a lot of nationals because of the lack of a security base,” Liu told Business Advantage PNG in June. “When you look at the bulk of the population, about 80% live in the district or rural areas, and they don’t have real assets or funds in the banks.”

PNG plans to draw on foreign expertise to galvanise its SME growth programmes. A delegation, led by Maru, hoped to learn from Malaysia’s small business segment when it attended the annual SME innovation showcase in Kuala Lumpur in mid-June. “We want to have our own SME show and the Pacific Games could be one avenue,” Maru told local newspaper Post Courier in May.

Paul Barker, the director of the PNG Institute of National Affairs, a non-profit policy research institute, told the newspaper last November that improved cooperation and coordination between stakeholders would be instrumental in maintaining SME growth.

“They’ve got valuable extra funding for SMEs in the budget, particularly through the National Development Bank,” but he added that businesses need access to micro finance products.

Government initiatives are expected to support SME growth across PNG. However, better coordination between stakeholders could help extend the reach of these programmes into its communities, helping to further develop smaller businesses.